Axis Bank board approves the acquisition of Enam securities in two steps

The second biggest private bank in the country, Axis Bank, announced that its board has accepted the proposal under which it will acquire the Enam Securities.

The entire board has unanimously accepted that Axis bank will complete the acquisition of the investment banking arm of Enam Securities in two steps. In the first step, Axis Bank will acquire the entity and in the second step it will demerge the it into a subsidiary. This will be very much in accordance with the terms set out by the Reserve Bank of India.

Earlier, the original deal was announced on November 18, 2010 and it was to be an all-stock deal, which was worth Rs 2,067 crore. But with RBI showed reluctance in giving its approval.

The deal with Enam shareholders, stands as same. Enam shareholders will receive 5.7 shares of Axis Bank for every share they hold in the brokerage. In total Enam shareholders will get 1.37 crore.

After the deal is completed with Enam"s financial services, the acquired business will immediately be sold to the Axis Bank's wholly owned subsidiary, Axis Securities and Sales.

Axis Securities will pay its parent bank the cash amount of Rs 274 crore, this is the book value of Enam financial services business.

A senior official on conditions of anonymity was quoted by Reuters, “It"s an accounting treatment mainly to comply with the regulations." The official further added that there was no structural changes to the deal.

VIEW: The deal will still need to be approved by the shareholders and creditors of the bank, Enam, Axis Securities, courts and regulators. Long list.

With this deal the Axis Bank will add to its portfolio offerings. It already has a mutual fund and banking business.

Though the stock doesn't have any immediate upside. With the price to book ratio of 2.33 time, it is not particularly cheap. Many analysts have been quoted by the media that the stock is good for long-term investment but we do not agree paying high price even from a long-term perspective.

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